Make or break for Poland as EU cash floods in

A general view of Warsaw city center and the Palace of Culture (R) is seen through the window of a hotel in Warsaw September 24, 2013. REUTERS/Kacper Pempel

WARSAW (Reuters) - Elzbieta Bienkowska, a 49-year-old mother with a tattoo on her arm and back, has more money to invest than any other Polish minister in history.

As minister for regional development, she is responsible for allocating 73 billion euros ($99 billion) of European Union money over the next seven years with the aim of closing the gap between ex-communist Poland and western Europe.

But with wealth comes responsibility. This will be the last time Poland will get such a huge amount of EU development funding, and if it does not use the opportunity to re-make its economy, it will have blown a once-in-a-lifetime opportunity.

And it is not as easy as it may sound. Poland needs to go from being a low-cost economy to one based on knowledge and technology - a complicated task that cannot be achieved just by throwing money at it.

Bienkowska, unfazed by the responsibility, has a plan.

“What is very important, maybe it is a kind of dream and it may sound funny, is to build a Polish Nokia,” she said in an interview.

The Finnish Nokia NOK1V.HE, which started as a rubber company, became a dominant global player on the mobile phone market over 2000-2010, creating wealth and high-value added jobs for the sparsely populated Scandinavian country.

Nokia sales have since collapsed, ravaged by nimbler rivals such as Apple (AAPL.O), but Bienkowska believes that Polish companies should follow the example set by Nokia in its growth years and work with scientists to develop new products.

“Our companies do not spend money on their own innovations. They prefer to buy the ideas from abroad. We will try to change this way of thinking,” Bienkowska said.

PLAN

Poland wants to make local firms innovate more by setting aside 10 billion euros of EU money and making it available for companies and universities, but only if they work together.

“In this program a university must find a partner on the market,” Bienkowska said. “I am always calling it a kind of a blackmail: this money is for you, but only if you invent something that the market will use.”

Nearly five decades of Communist rule left Poland with run-down infrastructure and firms that were not able to compete on increasingly competitive global markets.

Over the last 20 years of market economy, local firms have grown stronger, benefiting from foreign capital and technology pouring into the country.

But Poland is one of the European Union’s least innovative members, something that has to change if Poland is ever to join the world’s wealthier nations. Bienkowska said IT, medicine and aviation were among the most promising sectors.

“We have quite a lot of innovative companies,” she said. “We have to really push them and give them a chance to develop, by giving them a lot of money.”

A partially constructed toll station is seen along a highway near Warsaw, September 20, 2013. REUTERS/Kacper Pempel

There are signs the country’s strategy of fostering clusters of innovative companies is beginning to bear fruit.

Poland’s top software maker, Asseco Poland (ACPP.WA), plans to team up with a larger partner to become Europe’s No.2 over the next five years and challenge market leader Germany’s SAP (SAPG.DE).

“One day we will find a Pole who will manage to achieve such success as Bill Gates,” Asseco chief executive Adam Goral said.

In less than a decade, Asseco managed to increase its revenue from around 40 million zlotys ($13 million) to more than 5.5 billion and is now present in around 40 countries.

Slideshow (3 Images)

OUTLOOK

EU-funded infrastructure has already transformed the everyday life of Poles. Since the country entered the bloc in 2004, new highways have reduced travel times and IT systems have increased the administration’s efficiency.

Bienkowska said projects funded with European money have created about 300,000 jobs so far, raising living standards of the population of 37 million.

Foreign Minister Radoslaw Sikorski has called EU structural funds Poland’s “Marshall plan”, drawing parallels to the vast sums the United States transferred to western Europe to rebuild it after World War Two.

Since 2006, Poland’s gross domestic product has increased by over a third in real terms. Bienkowska said about half of this growth in output was attributable to EU structural funds. Poland’s GDP per capita now accounts for 66 percent of the EU average.

Over the same period the country moved 19 places up in the World Bank’s ranking of ease of doing business and now ranks 55. But red-tape still hinders growth.

The World Bank says an outdated and inefficient construction code is one of the most acute problems. A Polish company needs 29 permits to build a warehouse on the outskirts of the capital, a nearly world-beating number.

“Sometimes we are forced repeat the whole procedure,” said Zbigniew Kmicic, head of construction firm Poleksbud-Trade and vice-president of the Employers of Poland lobby. “This is painful.”

In July, the government approved new legislation to simplify the process. Bienkowska said the changes could come into force next year, but it will likely take longer for businesses to feel the difference.

Despite the challenges, Bienkowska said she believed Poland was now living through one of its most prosperous times in its turbulent 1,000-year history.

Asked what Poland will look like in 2020, when most of the funds are spent, she leaned back in her chair in the freshly renovated ministry compound in Warsaw and said: “Poland will be a beautiful, boring European country.” ($1 = 0.7403 euros) ($1 = 3.1394 Polish zlotys)